Hong Kong must confront inequality and housing dilemmas

As Hong Kong marked its 20th anniversary as a Special Administrative Region of China, Chief Executive Carrie Lam started her term strongly. However, there are issues that her government must squarely face, including the rising levels of income inequality and unaffordable housing prices, which can have serious implications for the governance of Hong Kong.

The city's extreme income inequality is gradually worsening. Hong Kong has often been ranked as one of the most inegalitarian advanced economies around the world. It is also obvious that the strong economic growth of Hong Kong in the past was not widely shared among the population, leading to the rise of the super-rich. According to research done by financial information providers Wealth-X and UBS, the wealth density of “ultra-high net worth” individuals (with assets of US$30 million and above, equivalent to HK$200 million) in Hong Kong is reportedly 20 times the global average. Moreover, the concentration appears to be accelerating, with a four-fold increase in the growth rate of those individuals' wealth from 2013 to 2014. It is clear that inequality is severe and the economy of Hong Kong is biased.

Housing prices have always been a point of contention in Hong Kong, as there is a conflict between affordability and market stability. The first Chief Executive, Tung Chee-hwa, made an ambitious attempt to provide public housing with limited success; his successor, Donald Tsang, refused to resume the provision of public housing even after the economy recovered. Carrie Lam's predecessor, Leung Chun-ying, provided a range of housing policy initiatives such as the resumption of the public housing provision, a long-term housing strategy and land sale for local people.

Despite his endeavors, property prices remain unaffordable with little sign of decline. The 2018 Demographia International Housing Affordability Survey demonstrated that Hong Kong is the city with the least affordable housing market globally for the eighth consecutive year. The local median house price is 19.4 times the median household income, "outperforming" other major metropolises like Sydney (12.9), Vancouver (12.6), and Los Angeles (9.4).

Given the severity of the widening income gap and rising housing prices, the Hong Kong government is arguably limited in what it can do. On the revenue side, the highest personal income tax rate is around 17 percent locally, which is relatively low internationally. This is perhaps crucial to the city's continued role as an international financial center, but does not provide the government with enough income flow to support broad welfare and housing programs. Similar policy changes such as the repeal of the estate duty in 2006 were welcoming for the rich, but again increased the bias in the local economy. According to my estimation, every top earner in Hong Kong on average was to receive 2.7 times as much as an average taxpayer in monetary terms from the various economic stimulus packages after the 2007 global financial crisis.

It is undoubtedly challenging to resolve the surging inequality and housing problems, given their complexities and the limitations faced by the local government in terms of policy design, economic considerations and political implications. But with the right motivation and determination, there is no reason why Carrie Lam cannot resolve these deep-rooted issues and achieve a strong and effective governance during her time in office.

Dr. Mathew Wong is an Assistant Professor in the Department of Politics and Public Administration at the University of Hong Kong.

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